Observations by an academic researcher on the use of “open”-ness as a competitive strategy, with a particular interest in coping with the commoditization of information goods and technologies in an Internet-enabled world.

Monday, February 26, 2007

Sorry I'm behind on the news, but I’m working on two papers to send off to conferences this week. Last week brought a potentially huge development in the communications industry, one that largely went unnoticed. (No, I don’t mean the XM-Sirius merger).

Some have likened Skype’s petition to the Carterfone decision, which allowed third party answering machines, fax machines and modems — but most of all allowed Radio Shack to sell everyone a $10 handset. I think it’s more similar to the Execunet decision, in that it allows others to provide services over the telco lines. For those who are not rabid telecom historians (like you know who), below are the key decisions increasing AT&T’s competition, which I compiled for my planned mobile phone dissertation from two excellent books (by Brooke Tunstall and Peter Temin) on the end of the old Ma Bell:

Decision

Title

Applicant

Decided by

Competition Authorized

Jan. 1956

Final Judgment (1956 Consent Decree)

AT&T, Justice Department

AT&T limited to common carrier services and equipment sales to own subsidiaries

July 1959

Above 890 Mc.

Motorola

FCC

Private lines operated by users

June 1968

Carterfone

Carter Electronics

FCC

Third party terminal equipment

Aug. 1969

MCI

MCI

FCC

Private lines for resale

June 1971

Specialized Common Carriers

(none)

FCC

Common carriers providing private line service

July 1977

Execunet

MCI

Circuit Court

Switched long distance service

Beyond the effect on the 2½ remaining Baby Bells, Skype’s petition will have implications far beyond the US. The same action could be brought in the UK and Japan, the two large countries whose telecommunications liberalization during the 1970s and 1980s most closely resembled the US. It’s also possible that one of the smaller markets — Australia, Canada or one of the Scandinavian countries — might take the lead.

This may get wrapped in the larger US debate over “net neutrality,” which has elicited strong pro and con arguments — as with many policy debates, a combination of philosophical and self-interested arguments. Some carriers are hoping this will go away, but that seems merely a bad case of denial.

Compared to fixed line “net neutrality,” there are important practical and philosophical questions raised by mobile VoIP. At least in the US, the landline voice and IP services are separate (usually separate carriers), so voice traffic over the IP network benefits the IP carrier — and (at least with cable modems or fixed wireless) the IP carrier has an incentive to both open the network and support the VoIP effort. On mobile phones, the same carrier controls both the IP network and the voice business that would be cannibalized by it. Smaller carriers (who have more to gain) are embracing the possibilities, but the major carriers fear the downside.

The old Baby Bells were among the nastiest scorched earth lobbyists around, and today the two largest U.S. cellphone carriers are Baby Bells. But eventually MCI won and AT&T lost. The idea that carriers can block traffic because it competes with them seems like an unwinnable battle. Who knows, since the Cato Institute has opposed VoIP regulation, maybe they’ll back Skype.